Australia's iron ore miners appear set for a win in their long-running battle with China's huge state-owned steel producers.
The promising signal emerged as the China Iron and Steel Association backed down from its tough position on price cuts amid growing government concern over speculation and uncertainty in the sector.
At the same time, China is battling to avoid the complete collapse of the 40-year-old benchmark pricing system, which would pitch the country’s steel sector into the uncharted waters of relying on short-term index and spot-pricing.
Business magazine and website Caijing magazine and the state-controlled Shanghai Securities News said officials attending a closed meeting of the China Iron and Steel Association late yesterday said they would accept a lower price.
After insisting for the past six months on a price cut of 40 per cent to 45 per cent, CISA is now ready to discuss a cut of 33-40 per cent and end the talks quickly, a source cited in the Shanghai newspaper said. Japanese and South Korean mills have accepted a 33 per cent price cut.
Caijing said that no serious talks among CISA and leading miners BHP Billiton, Rio Tinto and Vale had taken place in the past two weeks.
“I don't think there will be a lower price for Chinese mills, perhaps an adjustment in contract terms, like half a year contract, or quarterly contract,” Usteel.com analyst Du Wei told The Australian.
“The talks this year should help the Chinese to improve their negotiation skills and CISA should learn to have better judgment on market trends.”
The long-running nature of the talks and the aggressive stance taken by CISA has already split the Chinese steel sector, with smaller and medium sized mills reported to have struck separate deals at higher prices than that sought by the big producers.
According to the China Securities Journal, some big mills have reached agreements with miners and issued letters of credit to buy iron ore at a 33 per cent discount to the price last year.
CISA had been insisting that if prices do not fall more than 40 per cent - back to 2007 levels - steelmakers will run at a loss. But Caijing quoted an unnamed executive from leading steelmaker Hebei Steel Group saying that, with a 33 per cent cut they will still make a profit.
Iron ore spot prices are now about $65 free on board, compared with the contract price of $61 and China runs the risk of paying higher prices.
Increasingly rampant speculation on a higher contract price, which the Chinese government has been unable to control, has led to a record stockpile of iron ore amounting to 100 million tons, which is clogging up ports and warehouses around the country.
Source: The Australian
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